E-cigarette revenues may grow by more than 8% annually over the next five years
A DECADE ago Altria, which makes Marlboros, spun off its non-American business, Philip Morris International . The split was driven partly by Altria’s share price, which had been languishing below the sum of its parts, but also by regulatory hounding of Big Tobacco over its role in causing cancer. When British American Tobacco made a bid for Reynolds American, maker of Camels, in 2016, Bonnie Herzog, an analyst at Wells Fargo, a bank, urged PMI to reunite with its former parent.
Ms Herzog still thinks the merger makes sense, given the benefits of scale and geographical reach in what she calls the “global arms race” for “reduced-risk” products, which use fewer harmful chemicals. Last year Altria spent $12.8bn on 35% of Juul Labs, a maker of popular high-nicotine vaporisers. It paid $1.8bn for 45% of Cronos Group, a cannabis company from Canada .
For all that, merging with Altria may expose PMI to regulatory risks from Juul, whose controversial devices are a worrying hit with teenagers. Altria could also be a drag on PMI’s profitability, which has exceeded its parent’s since the split. PMI’s share price fell by 7.8% on the news. The deal may yet go up in smoke.
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